New Rules Put Clamp on Chatty Fed Officials

The Federal Reserve, in a push to control the often wayward communications of its top officials, issued detailed rules Tuesday dictating what they can and cannot do.

The U.S. central bank has come under fire for speaking with a dissonant voice and sometimes allowing details of its highly market-sensitive policy meetings to leak to the media or former staffers.

The move is part of a broader effort at making the Fed appear less detached from public concerns following criticism during the financial crisis that policymakers were too kind to Wall Street at the expense of Main Street.

Last year, the Fed announced Vice Chair Janet Yellen would chair a subcommittee on communications aimed at clarifying policy on the matter. The report was a result of that effort.

"To the fullest extent possible, Committee participants will refrain from describing their personal views about monetary policy in any meeting or conversation with any individual, firm, or organization who could profit financially from acquiring that information," the Fed said in a statement.

In September 2010, Reuters chronicled a tendency for former employees to get special — and lucrative — access in a special report entitled "The Ties That Bind at the Federal Reserve."

That investigation found that individuals such as former Fed board governor Larry Meyer, of Macroeconomic Advisers, were using their access to gain private information and then selling it back to his consulting firm's clients.

The Fed's new rules addressed the issue quite directly.

"Committee participants will strive to ensure that their contacts with members of the public do not provide any profit-making person or organization with a prestige advantage over its competitors," the Fed communique said.

"They will consider this principle carefully and rigorously in scheduling meetings with anyone who might benefit financially from apparently exclusive contacts with Federal Reserve officials and in considering invitations to speak at meetings that are sponsored by profit-making organizations or that are closed to the public and the media."

LACKING TEETH?

Some market participants, however, were skeptical that the rules could or would be adequately enforced.

"We shall see whether this set of rules is policed more effectively than the last one," said Stephen Stanley, economist with Pierpoint Securities. "The emphasis seems to be cutting off contact with individual market participants and consultants who can benefit or profit from obtaining inside information."

As part of the same evolution, Fed Chairman Ben Bernanke has begun holding quarterly press conferences — unprecedented for a U.S. central bank chief.

Communications have always been a tricky game for the Fed. Too little can leave financial markets in the dark, boosting uncertainty and volatility. Alan Greenspan, Bernanke's predecessor, tended more toward secrecy and became famous for his cryptic and sometimes unintelligible comments.

Too much clarity, however, can sometimes muddle the central bank's message on policy — particularly if officials give speeches with opposing views. Officials are still encouraged to give public speeches. But as the new rules make clear, there is a time and a place.

The new guidance also reinforces a desire to maintain a safe distance from political debates, including suggestions that certain types of events should be off limits for Fed policymakers.

"Participants will strive to avoid any appearance of political partisanship and will be prudent in selecting venues for their speaking engagements," the policy statement said.

The Federal Reserve, in a push to control the often wayward communications of its top officials, issued detailed rules Tuesday dictating what they can and cannot do.
The U.S. central bank has come under fire for speaking with a dissonant voice and sometimes allowing...